The Group has applied for the first time certain standards or amendments that have been in force since January 1st, 2021, without impact on the consolidated financial statement of the Group.

Amendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Phase 2 – issued on August 27th, 2020 and endorsed on January 13th, 2021. The amendments Phase 2 deal with some issues that could impact the financial reporting and information with respect to interest rate, including the effect on contractual cash flows or hedging relations due to the change from anAmendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Phase 2 – issued on August 27th, 2020 and endorsed on January 13th, 2021. The amendments Phase 2 deal with some issues that could impact the financial reporting and information with respect to interest rate, including the effect on contractual cash flows or hedging relations due to the change from aninterest rate benchmark to an alternative interest rate (replacement issues).

Hereinafter is a list of new standards, amendments and interpretations that will be applied by the Group after December 31st, 2021: the Group will assess the possible impacts of the application of such standard during its first time adoption.

IFRS 17 Insurance contracts

In May 2017, the IASB published IFRS 17 Insurance Contracts (IFRS 17), a new comprehensive standard which covers recognition and measurement, presentation and disclosure for insurance contracts. Once into force, IFRS 17 will replace IFRS 4 Insurance Contracts, published in 2005. IFRS 17 applies to all types of insurance contracts (e.g. life and non-life, direct insurance and re-insurance), regardless of the nature of the entity that issues them, as well as some guarantees and financial instruments with discretionary participation features. The standard will provide for some limited exceptions. The scope of IFRS 17 is to introduce an accounting model for insurance contracts that is more useful and consistent for insurers. Contrary to the provisions of IFRS 4 which largely maintain the previous accounting policies, IFRS 17 introduces an exhaustive model for all insurance contracts, covering all significant accounting issues. The core of IFRS 17 is the general model, supplemented by:

• a specific adaptation for contracts with direct participation characteristics (the variable fee approach);
• a simplified approach (the premium allocation approach) mainly for short-term contracts
• IFRS 17 will be in force for financial years starting on 1st January 2021 or later and will require the presentation of the comparative balances. Early application is permitted, in which case the entity must also have adopted IFRS 9 and IFRS 15 on the date of first application of IFRS 17 or previously not have significant effects on the Group's consolidated financial statements.

IAS 8.30 requires disclosure for those standards that have been issued but are not yet in force; it is required for the purpose of providing known or reasonably estimable information that is relevant to enable users to assess the possible impact of the application of these standards on an entity's financial statements. Below, standards and interpretations are illustrated which, at the preparation date of the Group's consolidated financial statements, had been issued but were not yet in force. The Group intends to adopt these standards and interpretations, if applicable, once they come into force.

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates

The amendments introduce a definition of accounting estimates, by replacing the concept of change in accounting estimates. According with the new definition, accounting estimates are monetary items subject to uncertainty in measurement. Entities perform accounting estimates if the accounting standards require that financial statements’ items are measured in a way that involve uncertainty in measurement. The IASB clarified that a change in accounting estimates deriving from new information or new developments in not to be taken as the correction of a mistake. Furthermore, the effects of a change in inputs or in a measurement technique upon which an estimate is based are considered as changes in estimates if they do not result from mistakes done in the previous periods. A change in accounting estimates could impact the net result of the current period or it could also impact the following periods: therefore, the impact on the current period must be booked through the present income statement, whilst the impact on the future periods must be booked in the respective income statements. Such amendments will be effective, once they will be endorsed, starting from January 1st, 2023.

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

In January 2020, the IASB published amendments to paragraphs 69 to 76 of IAS 1 to specify requirements for classifying liabilities as current or non-current. The amendments clarify:

• what is meant by the right to defer settlement;
• that the right to defer must exist at the end of the financial year;
• classification is not affected by the likelihood that the entity will exercise its right to defer;
• only if an embedded derivative in a convertible liability is itself a capital instrument does the liability's maturity have no impact on its classification.

The amendments will be effective for financial years beginning on or after 1st January 2023 and must be applied retrospectively. The Group is currently assessing the impact that the amendments will have on the current situation and in case it becomes necessary to renegotiate existing loan agreements as well as following the IFRS IC and IASB discussions in this regard.

Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies

The Amendments have the goal to help the Entities to prepare their financial statements in respect of the choice of the accounting policies, with particular attention to the definition of the relevant accounting policies and to the related disclosures to be given. An accounting policy is significant if the users of financial statement need it to understand other information included in the financial statement. Furthermore, IFRS Practice Statement 2 has been modified by adding guidelines and examples to show the application of the “four-step materiality process”. Such amendments will be effective, once they will be endorsed, starting from January 1st, 2023.

Reference to the Conceptual Framework — Amendments to IFRS 3

In May 2020, the IASB published amendments to IFRS 3 Business Combinations - Reference to the Conceptual Framework. The amendments are intended to replace references to the Framework for the Preparation and Presentation of Financial Statements, published in 1989, with references to the Conceptual Framework for Financial Reporting published in March 2018 without a significant change to the requirements of the standard. The Board has also added an exception to the valuation standards of IFRS 3 to avoid the risk of potential losses or gains "of the day after" arising from liabilities and contingent liabilities that would fall within the scope of IAS 37 or IFRIC 21 Levies, if contracted separately. At the same time, the Board decided to clarify that the existing guidance in IFRS 3 for contingent assets will not be affected by the update of the references to the Framework for the Preparation and Presentation of Financial Statements. The amendments will be effective for financial years beginning on 1st January 2022 and are to be applied prospectively.

Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

Issued on May 7th, 2021 and yet to be endorsed, the document partially amend IAS12’s requirements, by regulating if and when entities could avoid to book deferred tax liabilities or assets in certain circumstances. The goal of such amendments is to reduce differences in deferred taxes booked on leasing contracts and commissioning obligations. The amendments will be effective from January 1st, 2023; early adoption is permitted.

Property, Plant and Equipment: Proceeds before Intended Use — Amendments to IAS 16

In May 2020, the IASB published Property, Plant and Equipment — Proceeds before Intended Use, which prohibits an entity from deducting from the cost of property, plant and equipment any amounts received from selling items produced during the period while the entity is preparing the asset for it to be used in the way the entity's management intended. Instead, an entity will recognise such sales proceeds from such products, and related costs to produce such products, in the Income Statement. The amendment will be effective for financial years beginning on or after 1st January 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the start date of the period preceding the period in which the entity first applies this amendment. No material effects are expected for the Group with respect to these amendments. It is also to be noted that on March 31st, 2021 Amendment to IFRS 16 – Leases: Covid-19-Related Rent Concessions beyond June 30th 2021 was issued. The amendment is meant to modify the deadlines stated by IFRS 16 in choosing some of the options and criteria to apply the standard.

Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37

In May 2020, the IASB published amendments to IAS 37 to specify what costs should be considered by an entity when assessing whether a contract is onerous or at a loss. The amendment provides for the application of an approach called the "directly related cost approach”. Costs that relate directly to a contract for the supply of goods or services include both incremental costs as well as costs directly attributed to contractual activities. General and administrative expenses are not directly related to a contract and are excluded unless they are explicitly rechargeable to the counterparty on the basis of the contract. The amendments will be effective for financial years beginning on 1st January 2022 or later. The Group will assess the effects of such amendments in the event of contracts for which it has not yet fulfilled all its obligations at the beginning of the first financial year application.

Annual Improvements 2018-2020

IASB issued an amendment to IFRS1 – First Time Adoption, in order to give instructions in some aspects related the first adoptions of IFRS. The amendment is effective from January 1st 2021 and early adoption is permitted.

IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter As part of the 2018–2020 annual improvement process of IFRS standards, the IASB published an amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards. This amendment allows a subsidiary that chooses to apply paragraph D16(a) of IFRS 1 to account for cumulative translation differences on the basis of the amounts accounted for by the parent company, taking into account the date of transition to IFRS by the parent company. This amendment also applies to affiliated companies or joint ventures that choose to apply paragraph D16 (a) of IFRS 1. The amendment will be effective for financial years beginning on or after 1st January 2022 and early application is permitted.

IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities

As part of the 2018–2020 annual improvement process of IFRS standards, the IASB published an amendment to IFRS 9. This amendment clarifies the fees that an entity includes in determining whether the conditions of a new or modified financial liability are substantially different from the conditions of the original financial liability. These fees include only those paid or received between the debtor and the lender, including fees paid or received by the debtor

or the lender on behalf of others. An entity applies this amendment to financial liabilities that are amended or exchanged subsequent to the date of the first financial year in which the entity first applies the amendment. The amendment will be effective for financial years beginning on or after 1st January 2022 and early application is permitted. The Group will apply this amendment to financial liabilities that are amended or exchanged subsequent to the date of the first financial year in which the entity first applies this amendment. No material effects are expected for the Group with respect to this amendment.

IAS 41 Agriculture – Taxation in fair value measurements

As part of the 2018–2020 annual improvement process of IFRS standards, the IASB published an amendment to IAS 41 Agriculture. The amendment removes the requirements in paragraph 22 of IAS 41 relating to the exclusion of cash flows for taxes when the fair value of an asset is assessed for the purpose of IAS 41. An entity applies this amendment prospectively to the fair value measurement starting from financial years beginning on or after 1st January 2022, early application is permitted. No material effects are expected for the Group with respect to this amendment. The IASB also approved two amendments to IAS 1 and IAS 8 with reference to the disclosure of significant accounting policies and the definition of estimates and changes in accounting estimates.

The consolidated financial statements include the financial statements of the Parent Company and of the companies over which it exercises control, directly or indirectly, starting from the date on which it was acquired and up to the date when such control ceases. In this case, said control is exercised both by virtue of the direct or indirect ownership of the majority of shares with voting rights and the exercise of a dominant influence expressed by the power to determine, even indirectly by virtue of contractual or legal agreements, financial and managerial choices of the entities, obtaining the relative benefits, also regardless of any shareholding relationship. The existence of potential voting rights exercisable at the reporting date is considered for the purpose of determining control.

The consolidated financial statements have been prepared as at 31st December and are generally those specifically prepared and approved by the Boards of Directors of the individual companies, appropriately adjusted, where necessary, to align them with the accounting standards of the Parent Company.

On 30th March 2021, the Board of Directors of Saras SpA approved the draft separate financial statements of Saras SpA.

Consolidated subsidiaries are listed in the table below:

Compared to 31st December 2020, the parent company Saras Spa has established Sardhy Green Hydrogen Srl a joint venture with Enel Green Power, with the aim of designing, building and managing the first green hydrogen production plant in the area of the refinery in Sarroch. The shareholding is equal in terms of shareholdings, contractual relations and shareholders' agreements that govern relations between the two shareholders: in view of this, the company is not majority-owned by the Saras Group and has therefore been valued, in these financial statements, using the equity method.

The criteria adopted for the line-by-line consolidation of subsidiaries consolidated on a line-by-line basis are as follows:

[I] assets and liabilities, expenses and income are consolidated on a line-by-line basis attributing to minority shareholders, where applicable, the portion of shareholders’ equity and net result for the period pertaining to them; these items are reported separately in specific items of Shareholders’ Equity and the Consolidated Statement of Comprehensive Income;

[II] business combinations that lead to the control of an entity being acquired are accounted for using the purchase method. The cost of acquisition equates to the fair value on the date on which the entity’s assets and liabilities and any equity instruments issued are acquired. The difference between:

• the consideration paid (generally calculated on the basis of its fair value at acquisition date) and – in the case of a business combination achieved in stages – the fair value at the date of acquisition of control of the equity investment already held in the Company; and
• the fair value of the identifiable assets acquired net of the identifiable liabilities taken on, measured at the date that control is acquired

is recognised, where the relevant conditions apply, as goodwill on the date that control of the business is acquired. In the case of negative goodwill, this is recognised in the Income Statement.

[III] gains and losses arising from transactions between companies that are consolidated on a line-by-line basis, which have yet to be realised with third parties, are derecognised, where significant, as are any intragroup payables and receivables, costs and revenues and financial income and charges;

[IV] gains and losses arising from the disposal (without loss of control) of equity investments in consolidated companies are charged to equity for amounts corresponding to the difference between the selling price and the portion of consolidated equity effectively transferred. If further acquisitions of equity investments take place without a change in control, the difference between the purchase price and the corresponding portion of equity acquired is recognised through equity.

Investments in companies over which control is exercised jointly with other companies (joint ventures) and in companies over which the Group exercises significant influence (referred to hereinafter as “affiliated companies”), which is presumed to exist when a stake of between 20% and 50% is held, are accounted for using the equity method, except where the application of this method does not impact on the Group’s financial position, operating results and cash flow; in such instances, the investment is measured at fair value. The way in which the equity method is applied is described below:

[I] the carrying amount of an investment is brought into line with the equity of the investee, adjusted, where necessary, to reflect the adoption of accounting policies that are consistent with those adopted by the Parent Company and includes, where applicable, any goodwill identified at the time of the acquisition;

[II] the Group’s proportionate share of profits or losses is recognised in the consolidated income statement from the date on which the significant and controlling influence commences until the day it ceases to exist. Should the company, as a result of losses, report a net deficit, the carrying amount of the investment is eliminated and any excess amount attributable to the Group is allocated to the relevant provision, only where the Group has undertaken to meet the investee’s legal or constructive obligations or in any event to cover its losses. Changes in the equity of investee companies that are not allocated to the result posted in the income statement are directly added to or deducted from equity reserves;

[III] unrealised gains and losses arising from transactions between the Parent Company and subsidiaries or investee companies are derecognised based on the value of the stake held by the Group in the investees. Unrealised losses are eliminated, except where they represent an impairment loss.

The financial statements of the companies included in the basis of consolidation are prepared using the currency of the main economic environment in which they operate (functional currency). The consolidated financial statements are presented in euro, which is the functional currency of the Parent Company. The following rules are followed when translating the financial statements of companies expressed in a currency other than the functional currency into euro:

[I] assets and liabilities are translated at the applicable exchange rates on the reporting date;

[II] costs and revenues are translated at the average exchange rate for the period;

[III] the translation reserve includes both exchange rate differences arising from the translation of income statement amounts at an exchange rate different from the year-end rate and those arising from the translation of equity balances at the beginning of the year at an exchange rate different from the year-end rate;

[IV] goodwill and fair value adjustments relating to the acquisition of a foreign entity are treated as assets and liabilities of that entity and translated at the previous year-end exchange rate;

[V] when preparing the consolidated statement of cash flows, the average exchange rates for the period are used to translate the cash flows of foreign subsidiaries.

The consolidated statements have been prepared based on the cost principle, except in the specific cases described in the notes below, where fair value has been applied.

The main valuation criteria used are described below, which are unchanged compared with the previous year, except the comments made in the following paragraph "6 - Notes to the Income Statement" concerning the classification of results from derivative instruments.

A Cash and cash equivalents

Cash and cash equivalents mainly consist of cash on hand, demand deposits with banks, other short- term, highly liquid investments (convertible into cash within 90 days) and overdraft facilities; overdrafts in bank accounts are reported under current liabilities. Items listed under net cash and cash equivalents are measured at fair value and changes are reported in the income statement.

B Other financial assets

Other financial assets are reported at fair value, with any gains reported in the income statement under “Financial income” and “Financial charges”. Other financial assets also include derivative contracts, which are discussed in the appropriate section "Y Derivative Instruments" to which reference is made for additional details.

C Trade receivables

Trade receivables are measured at fair value on initial recognition. Subsequently, they are valued at amortised cost by applying the effective interest rate method. Where there is objective evidence indicating impairment (in terms of both solvency and the credit risk characteristics of individual debtors), the asset’s carrying amount is decreased to an amount equal to the discounted value of its future cash flows.

At the closing date of each balance sheet, the Group conducts an analysis of any expected losses on trade receivables measured at amortised cost and recognises or adjusts specific provisions for impairment.

The provisions for the above-mentioned expected losses are based on assumptions regarding the risk of default and expected losses. To this end, management uses its professional judgement and historical experience, as well as knowledge of current market conditions and forward estimates at the end of each reporting period.

Expected Credit Loss (ECL), determined using probability of default (PD), loss given default (LGD) and exposure at default (EAD), is determined as the difference between the cash flows due under the contract and the expected cash flows (including loss of earnings) discounted using the original effective interest rate.

The Group essentially applies an analytical approach, on individually significant positions and in the presence of specific information on the significant increase in credit risk. For individual assessments, PD is obtained mainly from external providers such as legal advisors who are entrusted with debt collection cases.

Receivable assignments

Receivable assignments are accounted for in accordance with the method indicated by IFRS 9 for the derecognition of financial assets. Consequently, all receivables assigned to the factoring company, when contractual provisions include clauses that involve maintaining significant exposure to the performance of cash flows arising from the receivables assigned, remain recognised in the financial statements.

D Inventories

Inventories are recognised at the lower of purchase or production cost and the net realisable value at the end of the financial year represented by the amount that the Group expects to obtain from their sale as part of its ordinary business activities, also considering sales made after the reporting date, or, for later periods, the expected price curves. The value of crude oil, materials and spare parts is determined by the FIFO method. The value of oil product inventories is calculated using the weighted average cost of the last quarter.

E Current tax assets

Current tax assets are booked at initial recognition in the amount that is expected to be recovered from the tax authorities, taking into account their expected realisable value. Subsequently, they are recognised at amortised cost.

F Other assets

Other current assets are measured at fair value on initial recognition. Where there is objective evidence indicating impairment, the asset’s carrying amount is decreased to an amount equal to the discounted value of its future cash flows. Impairment losses are recognised in the income statement. If in subsequent periods the reasons for the write-down no longer exist, the write-down is reversed up to the amount that would have resulted from the application of amortised cost had the asset not been written down.

White certificates are recognised on an accruals basis under “Other income”, in proportion to the savings, expressed as tonnes of oil equivalent (TOE), achieved during the year.

The certificates are valued at the average market value for the year, unless the market value at the end of the year is significantly lower. The decreases due to the sale of white certificates accrued in the current or prior years are measured at the sale price. Gains and losses

arising from the sale of certificates in different years from those in which they were accrued are recognised under "Other income" or "Services and sundry costs", respectively.

G Derecognition of financial assets and liabilities

A financial asset (or, where applicable, part of a financial asset or part of a group of similar financial assets) is derecognised at once (e.g. removed from the statement of financial position of the Group) when:

• the rights to receive cash flows from the asset are extinguished, or
• the Group has transferred to a third party the right to receive cash flows from the asset or has assumed the contractual obligation to pay them in full and without delay and (a) has transferred substantially all the risks and rewards of ownership of the financial asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control over that asset.

In cases where the Group has transferred the rights to receive cash flows from an asset or entered into an agreement under which it retains the contractual rights to receive the cash flows from the financial asset, but assumes a contractual obligation to pay the cash flows to one or more beneficiaries (pass- through), it assesses whether and to what extent it has retained the risks and rewards of ownership. If it has neither transferred nor retained substantially all the risks and benefits or has not lost control over it, the asset continues to be recognised in the Group's financial statements to the extent of its residual involvement in the asset. In this case, the Group also recognises an associated liability. The transferred asset and the associated liability are valued to reflect the rights and obligations that continue to be incumbent upon the Group.

When the entity's continuing involvement is a guarantee on the transferred asset, the involvement is measured at the lower of the amount of the asset and the maximum amount of consideration received that the entity may have to repay.

A financial liability is derecognised when the obligation underlying the liability is extinguished, cancelled or fulfilled. Where an existing financial liability is replaced by another from the same lender, under substantially different conditions, or the conditions of an existing liability are substantially changed, such exchange or change is treated as a derecognition of the original liability, accompanied by the recognition of a new liability, with any differences in carrying amounts recognised in profit or loss.

H Property, plant and equipment

Property, plant and equipment are measured at purchase or production cost, less accumulated depreciation and any impairment. The cost includes all expenses incurred directly in preparing the assets for use, as well as any disposal and removal charges incurred as a result of contractual obligations. Any interest expenses relating to the construction of tangible assets are capitalised until the asset is ready to be used.

Costs associated with requirements to restore or dismantle plants arising from statutory or contractual obligations are accounted for as an increase in the historical cost of the asset with an offsetting entry in the provisions for risks and future liabilities.

Charges incurred for maintenance and repairs are charged directly to the Income Statement for the period in which they are incurred. Costs relating to the expansion, modernisation or improvement of facilities owned by Saras or used by third parties are only capitalised up to the limits within which they fulfil the conditions for separate classification as an asset or part of an asset in accordance with the component approach. Turnaround costs are classed as extraordinary maintenance costs and capitalised in the year in which they are incurred. They are amortised over the expected length of time until the next turnaround. Similarly, the costs of replacing the identifiable components of complex assets are recognised as assets and depreciated over their useful life; the residual value of components thus replaced is charged to the income statement. Government grants relating to capital expenditure are deducted from the purchase price or production cost of the relevant assets when the conditions necessary for receiving them have been met.

The carrying amount of property, plant and equipment is adjusted by systematic depreciation, calculated on the basis of historical cost less residual value on a straight-line basis, from the time the asset is available and ready for use, in accordance with its estimated useful life.

The useful life estimated by the Group for each of the various asset categories is as follows:

The useful life of property, plant and equipment and their residual value are revised annually at each reporting date and adjusted accordingly.

Land is not depreciated

If an asset to be depreciated consists of separately identifiable components and the useful life of one component differs significantly from that of the others, each component of the asset is depreciated separately in accordance with the component approach. Tangible assets are derecognised at the time of their disposal or when no future economic benefits are expected from their use or disposal; the relative profit or loss is recognised in the Income Statement.

I Leased assets and rights to use assets

Assets held through leasing contracts or contracts granting rights to use third party assets are recognised as Group assets at their current value or, if lower, at the current value of the minimum lease payments due, except for those of short-term or low value. The corresponding liability to the lessor is recognised on the statement of financial position under financial liabilities. The assets are depreciated on a straight-line basis over the term of the underlying contract and the financial liability is repaid on the basis of the payments provided for in the lease or the right to use.

J Intangible assets

Intangible assets are made up of elements that are non-monetary in nature, without physical substance and clearly identifiable (i.e. distinct, able to be separated, dismantled or traded and deriving from other contractual or legal rights), controlled by the company and capable of generating future economic benefits. These elements are recognised at acquisition and/or production cost, which includes any directly attributable charges incurred in preparing the asset for use, net of accumulated amortisation and any impairment losses. Any interest expenses accrued during and in respect of the development of intangible assets are charged to the income statement. Amortisation commences from the time the asset is available for use and is charged on a straight-line basis over its estimated useful life.

Tangible assets are derecognised at the time of their disposal or when no future economic benefits are expected from their use or disposal; the relative profit or loss is recognised in the Income Statement.

[I] Goodwill

Goodwill is the excess cost of the acquisition cost plus the fair value of any minority interests already held at the point when control is acquired, incurred over net fair value, as recorded on the acquisition date, when acquiring assets and liabilities forming businesses or business units. Goodwill relating to equity-accounted investees is included in the carrying amount of the investees. It is not systematically amortised, but is periodically tested for impairment. This test is carried out with regard to the cash generating unit to which goodwill is to be allocated. Any reduction in goodwill is recognised where the recoverable amount of goodwill is lower than its carrying amount; the recoverable amount is the higher of the fair value of the cash generating unit, less disposal costs and its value in use, which is the present value of the cash flows expected to be generated in the years during which the cash generating unit is operating and from its disposal at the end of its useful life.

In the event that the impairment arising from the test is greater than the amount of goodwill allocated to the cash generating unit, the residual amount is in turn allocated to the assets included within the cash generating unit, in proportion to their carrying value. The minimum amount for this allocation is the highest of the following:

• the fair value of the asset, less disposal costs;
• its value in use, as defined above;
• zero.

Where goodwill was previously written down for impairment, the write-down is not reversed.

[II] Patent rights, concessions, licences and software (intangible assets with a finite useful life)

Intangible assets with a finite useful life are amortised systematically over their useful life, taken to be the estimated period in which the assets will be used by the company; the recoverability of the carrying amount of the assets is checked using the same method applied to “Property, plant and equipment”.

[III] Research and development expenses

The costs associated with the acquisition of new knowledge or discoveries, the development of alternative products or processes, new techniques or models, the design and construction of prototypes, or otherwise relating to other scientific research or technological development are treated as current costs and taken to profit or loss when incurred.

K Impairment of assets

At each reporting date, property, plant and equipment and intangible assets with a finite useful life and equity investments are tested for impairment, originating from both internal and external sources. Where such indicators exist, the recoverable amount of these assets is estimated and any impairment loss duly charged to the income statement. The recoverable amount of an asset is the greater of its fair value minus selling costs and its value in use, where the latter is the present value of the future cash flows that the asset is expected to generate. In determining value in use, future cash flows are discounted using a pre-tax discount rate that reflects current market assessments of the time value of money in relation to the period of the investment and the risks specific to the asset. The recoverable value of an asset that does not generate largely independent cash flows is determined in relation to the cash generating unit to which the asset belongs. An impairment is recognised in the income statement whenever the carrying value of an asset, or of the cash generating unit to which it is allocated, is higher than its recoverable value. When the reasons for impairment no longer exist, the impairment loss is reversed to profit or loss up to the carrying amount that the asset would have had, had it not been impaired and if it had been depreciated.

L Other investments

The investments included under “Other investments” are measured at fair value, with the impact of any changes in fair value recognised through equity. Where fair value cannot be reliably determined or is insignificant, they are measured at cost less any impairment losses, in compliance with IFRS 9.

These costs are periodically reviewed in order to determine whether any impairment indicators exist that might indicate that their recoverable value is lower than their carrying value.

M Other financial assets

Depending on the characteristics of the instrument and the business model adopted for its management, financial assets are classified into the following categories:

(i) financial assets measured at amortised cost;

(ii) financial assets measured at fair value with recognition of the effects among the other components of comprehensive income (hereinafter also OCI);

(iii) financial assets measured at fair value with recognition of the effects in the Income Statement.

Initial recognition is at fair value; for trade receivables without a significant financial component, the initial recognition value is represented by the transaction price. Subsequent to initial recognition, financial assets that generate contractual cash flows exclusively representing capital and interest payments are measured at amortised cost if held for the purpose of collecting the contractual cash flows (hold-to-collect business model). The application of the amortised cost method results in the recognition in the income statement of interest income determined on the basis of the effective interest rate, exchange rate differences and any write-downs.

The treatment of financial assets linked to derivative instruments is shown under point “Y Derivatives”.

N Treasury shares

Treasury shares are recognised at cost and deducted from equity.

O Shareholders’ equity

[I] Share Capital

Share capital consists of the Parent Company’s subscribed and paid-up capital. Costs strictly related to the issue of new shares are deducted from equity reserves, after any deferred tax effect.

[II] Reserves

Reserves comprise equity-related reserves set aside for a specific purpose relating to the Parent Company; they include retained earnings.

[III] Share-based payments by the Parent Company to Group employees and management

The Group grants additional benefits to employees and management via the allocation of bonus shares. In accordance with IFRS 2 – Share-based Payments, the cost of stock plans is recognised in profit or loss over the vesting period on a straight-line basis, with a balancing entry in equity. Changes in fair value after the grant date have no effect on the initial valuation.

P Provisions for risks and charges

Provisions for risks and charges are recognised only where a present obligation (legal or constructive) exists in relation to past events that is expected to result in an outflow of financial resources, the amount of which can be reasonably assessed. This amount represents the best estimate of the sum that must be paid to discharge the obligation.

Those risks in respect of which it is only possible to show a future liability are disclosed in the section on commitments and risks and no provision is made.

Q Provisions for employee benefits

The Group provides various types of pension plans, in keeping with the conditions and practices that are commonly applied locally in those countries in which it carries out its activities.

From 1st January 2007, the regulations governing post-employment benefits (TFR) were amended to include the option for employees to decide where these are held. Specifically, new post-employment benefits may be allocated to pension funds or held at the company (if it has fewer than 50 employees, or allocated to INPS if it has more than 50 employees). The introduction of these regulations has resulted in the following accounting changes:

• Amounts set aside to 31st December 2006

Post-employment benefits pursuant to Article 2120 of the Italian Civil Code are treated in the same way as “defined benefit plans”; these plans are based on the working life of the employees and on the remuneration they receive over a pre- determined period of service. The liability relating to post-employment benefits is entered on the statement of financial position based on their actuarial value, since this can be quantified as a staff benefit due on the basis of a defined benefit plan. The recognition of defined benefit plans requires the estimate of the benefits accrued by the employees in exchange for the service provided using actuarial techniques. These services are then discounted in order to determine the present value of the Group’s obligations. The present value of the Group’s obligations is determined by an external consultant using the projected unit credit method. This method, which comes under the more general area of “accrued benefit methods”, considers each period of service at the company as an additional unit of entitlement: actuarial liabilities must therefore be quantified solely on the basis of years worked at the valuation date; thus, an estimate of the total liability is normally extrapolated from the number of years of service at the valuation date to account for the total number of years worked at the time the benefit is expected to be paid.

The cost accrued for the year in respect of defined benefit plans is recorded in the income statement under personnel expenses and is equivalent to the sum of the average present value of entitlements accrued by current employees and the annual interest accrued on the present value of the Group’s obligations at the beginning of the year, calculated using the discount rate for future disbursements that is used to estimate liabilities at the end of the previous year. The annual discount rate adopted for these calculations is the end-of-year market rate for zero coupon bonds with the same maturity as the average remaining duration of the liabilities.

Following application of IAS 19 (revised), actuarial gains and losses relating to the change in parameters, previously reported in the income statement (personnel costs), are now recognised in the statement of comprehensive income.

• Allocations accrued from 1st January 2007

The allocations in question are accounted for using the method adopted for defined contribution pension plans (which are not subject to actuarial valuations) as the amount relating to employees has been transferred in full outside the Group.

The corresponding liability is determined according to Article 2120 of the Italian Civil Code.

R Financial liabilities, trade and other payables and other liabilities

They are measured, on initial recognition, at fair value and subsequently at amortised cost, using the effective interest rate method. Where there is a change in the estimated future cash flows and these can be reliably estimated, the value of the payables is recalculated to reflect this change on the basis of the present value of the new estimated future cash flows and the internal rate of return originally calculated.

Sale transactions with a repurchase obligation represent a form of financing as the risks attached to ownership (mainly the risk relating to changes in fair value) remain with the Company. In this case, the assets are not derecognised, the debt for the repurchase is of a financial nature and the difference is recognised in profit and loss as a component of a financial nature.

Financial liabilities also include derivative contracts, which are discussed in the appropriate section below. Derivative contracts are measured at fair value with a balancing entry in profit or loss at each reporting date.

S Revenue recognition

The recognition of revenues from contracts with customers is based on the following five steps: (i) identification of the contract with the customer;

(ii) identification of the performance obligations, represented by the contractual promises to transfer goods and/or services to a customer; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations identified on the basis of the stand-alone sale price of each good or service; (v) recognition of the revenue when the relative performance obligation is satisfied, i.e. when the promised good or service is transferred to the customer; the transfer is considered completed when the customer obtains control of the good or service, which can occur continuously (over time) or at a specific time (at a point in time).

With reference to the products sold for the Group, the time of revenue recognition generally coincides:

• for crude and oil products, with shipping;
• for electricity with delivery to the customer;
• for oil products sold on the network market, with delivery to service stations.

The recognition of revenues from services is based on the stage of completion reached.

Revenues are recorded net of returns, discounts, allowances and premiums and of directly related taxes.

Excise duties paid on purchases are netted off against those collected on sales.

T Recognition of costs

Costs are recognised when they relate to goods and services that are sold or used during the year or by systematic allocation, or when their future usefulness cannot be determined.

U Interest income and expenses

Interest income and expenses are booked on an accruals basis, according to the effective interest rate method.

V Conversion of items expressed in a currency other than the euro

Foreign currency transactions are translated into euros at the exchange rates ruling on the transaction date. Exchange rate gains and losses arising from the settlement of such transactions and from the translation at year-end exchange rates of monetary asset and liability items denominated in a foreign currency are recorded in the income statement.

W Dividends

[A] Dividends received

Dividends are recognised on the date on which the resolution approving them is carried by a shareholders’ meeting.

[B] Dividends distributed

The payment of dividends to Parent Company shareholders is recognised as a liability in the statement of financial position of the year in which the distribution was approved by the company’s shareholders.

X Taxes

Current taxes are calculated based on the taxable income for the period, applying the prevailing tax rates at the reporting date.

Deferred taxes are calculated on all temporary differences arising between the tax base of an asset or liability and its carrying amount, with the exception of goodwill and those relating to temporary differences originating from investments in subsidiaries, when the timing of the reversal of such differences is controlled by the Group and it is probable that the differences will not be reversed within a reasonably foreseeable timescale. In respect of deferred tax assets (including those relating to tax losses from previous periods) that cannot be offset against deferred tax liabilities in full, the residual portion is recognised to the extent that it is probable that taxable income will be generated in future against which they can be recovered.

Deferred taxes are calculated using the tax rates that are expected to apply in the years in which temporary differences are realised or reversed.

Changes in tax rates due to regulatory amendments are recorded in the income statement or under equity, in relation to the transaction that generated the underlying deferred tax.

Current and deferred taxes are recognised in the income statement, with the exception of those related to items directly deducted from or added to equity, in which case the tax effect is taken directly to equity. Current and deferred taxes are offset when income taxes are applied by the same tax authority, when there is a legal right of offset and the intention to settle on a net basis.

Other taxes not related to income, such as property taxes, are included under “Cost of services and sundry costs”.

The Parent Company allows its Italian subsidiaries to participate in the tax consolidation scheme for the purposes of calculating corporate income tax (IRES), pursuant to Articles 117-128 of the Consolidated Law on Income Tax (the Consolidated National Tax). As a result, a single tax base is created for the Parent Company and some Italian subsidiaries, essentially through the algebraic sum of the tax profit or loss of each participant. Participation in a particular scheme is confirmed by a communication to the tax authority made by the Parent Company indicating which subsidiaries have decided to take up this option. The option has a fixed duration of three years (except in the event of interruptions provided for by law) and the matter is governed between the two parties by a consolidation agreement. With specific reference to the transfer of tax losses, the agreements in force provide for remuneration commensurate with the ordinary IRES tax rate, equal to the portion of the loss of each subsidiary that was effectively offset by taxable income generated by other consolidated companies. Any excess losses remain allocated to the parent company and remuneration for these losses is deferred until the year that they are actually used under the national tax consolidation scheme.

Y Derivative instruments

All derivatives are financial assets and liabilities that are recognised at fair value.

They are classified as hedging instruments when the relationship between the derivative and the item being hedged is formally documented and the effectiveness of the hedge, verified periodically, is high. When derivatives hedge the risk of changes in the fair value of the underlying items (fair value hedges, e.g. hedging the variability of the fair value of assets/liabilities), they are recorded at fair value in the income statement; at the same time, the hedged items are adjusted to reflect the changes in fair value associated with the risk hedged.

Derivative financial instruments on commodities, in accordance with IFRS 9, are recognised at fair value with the change in the fair value of the instrument recognised in the income statement and this change is allocated to the items of operating costs to which the hedges refer.

Derivative financial instruments on commodities, realised on the basis of strategies other than the fixing of prices of crude oil and products, are entered at fair value with the recognition of economic effects in financial management items.

Derivative financial instruments on exchange rates and interest rates are recorded at fair value with the change in the fair value of the instrument recognised under financial management items in the income statement.

To determine the fair value of financial instruments listed on active markets, the bid price of the security on the relevant reporting date is used. In the absence of an active market, fair value is determined by using measurement models based largely on objective financial variables and by considering, wherever possible, the prices observed in recent transactions and the prices for comparable financial instruments.

To be noted is that most of these stipulated derivatives relate to hedging transactions not subject to “hedge accounting” rules.

Z Earnings per share

[I] Base

Basic EPS is calculated by dividing the Group’s profit or loss, adjusted by the portion of profit or loss attributable to the holders of preference shares, by the weighted average of ordinary shares outstanding during the year, excluding treasury shares.

[II] Diluted

Diluted EPS is calculated by dividing Group- operating profit, adjusted by the portion of earnings attributable to the holders of preference shares, by the weighted average of ordinary shares outstanding during the year, excluding treasury shares. For the purpose of calculating diluted earnings per share, the weighted average of shares outstanding is modified by assuming the conversion of all potentially dilutive ordinary shares, while the Group’s profit or loss is adjusted to take into account the after-tax effects of the conversion.

AA Emission Trading

Decree-Law no. 216 of 4th April 2006 has introduced limits on CO2 emissions from plants. If these limits are exceeded a company must purchase allowances or credits on the relevant market representing the excess CO2.

If the allowances allocated are insufficient, the value of the shortfall is measured at market value and recorded in risks; if, however, the allowances exceed requirements, the surplus, measured at purchase cost aligned to the market value at the end of the year if lower, is recorded under intangible assets.

AB Segment information

An operating segment is a part of an entity:

• that undertakes commercial activities that generate revenues and costs (including revenues and costs relating to transactions with other parts of the same entity);
• whose operating results are reviewed periodically at the highest operational decision-making level of the entity in order to adopt decisions on the resources to be allocated to the segment and the assessment of the results; and
• for which separate accounting information is available.

A geographical segment is defined as a group of assets and transactions used for specific services in a particular geographical area and subject to risks and benefits substantially different from those related to other geographical areas.

The preparation of the financial statements requires directors to apply accounting standards and methodologies that, in certain situations, are based on discretionary valuations and estimates founded on past experience and assumptions that at the time are considered reasonable and realistic under the circumstances. The application of these estimates and assumptions affects the amounts reported in the financial statements, i.e., the statement of financial position, income statement, statement of comprehensive income and cash flow statement, as well as the accompanying disclosures. The actual results of the accounting entries for which estimates and assumptions have been used may differ from those shown in the financial statements, due to the uncertainty surrounding said assumptions and the conditions upon which the estimates are based.

A brief description is provided below of the most significant accounting policies requiring greater discretion by the directors in the preparation of their estimates and in respect of which a change in the conditions underlying the assumptions used could have a significant effect on the restated aggregate financial information.

• Depreciation of fixed assets: depreciation of fixed assets is a significant cost for the Group. The cost of property, plant and equipment is depreciated on a straight-line basis over the estimated useful life of the assets concerned. The useful life of the Group’s assets is determined by the directors at the time they are purchased; it is based on past experience for similar assets, market conditions and expectations as to future events that could affect their useful life, such as changes in technology. Their actual useful life could therefore differ from the estimate. The Group periodically assesses technological changes and industry developments, dismantling and disposal costs and recoverable amount in order to adjust the asset’s remaining useful life. This periodic revision process could lead to a change in the depreciation period considered and, therefore, in the depreciation charged in future years.
• Recoverable amount of property, plant and equipment: in the presence of impairment indicators, the estimated recoverable value is derived from a complex valuation process that largely depends on external sector variables or changes in the reference regulations. The corresponding environment is monitored continuously and sector analyses are obtained regularly. However, it may be that the effective change in the key variables is not in line with expectations.
• Recoverable amount of inventories : the estimate of the recoverable amount of inventories entails a valuation process that is highly influenced by the performance of the oil product market, which is exposed to significant changes, including of a short-term nature. Therefore, the net realisable value of crude oil and finished goods at year end is estimated based on the amount that the Group expects to obtain from their sale, by observing the sales taking place after the reporting date. Consequently, this assessment is influenced by market conditions.
• Deferred tax assets: deferred tax assets are accounted for on the basis of expected taxable income in future periods. The measurement of expected income for deferred tax recognition purposes depends on factors that may vary over time and may have a significant effect on the measurement of deferred tax assets.
• Provisions for risks and impairment losses on current assets: in certain circumstances, determining whether there is a current obligation (either legal or constructive) or the recoverability of current assets is not always straightforward. The directors consider such circumstances on a case-by-case basis and at the same time estimate the amount of financial resources needed to discharge the obligation. Where the directors feel that a liability or the risk of not recovering an asset are only possible, the associated risks are disclosed in the note concerning commitments and risks and no accrual is made. Where the directors feel that a liability or the risk of not recovering an asset are only probable, a special risk provision is recorded.
• Revenues from electricity (Essentiality scheme): since the end of April 2021, Sarlux Srl has been admitted in the list of the plants which are considered essential to the National Electricity System. Given that admission, revenues deriving from electricity sold are regulated on a two-factors basis. The first factor is measured to restore fixed costs, including amortization and depreciation and the remuneration of the net invested capital, as stated by “Deliberazione 111/06”. The second factor is meant to integrate the differential (positive or negative) between variable costs and market local price.
• The estimation of such revenues, especially the estimation of the integration factor, requires the management to perform an estimation process which – even if it is not particularly discretional – has a significant economic impact.
• Measurement of the recoverable amount of receivables: most of the receivables arising from the Group's operations are factored without recourse (and derecognised) and/or covered by other credit risk mitigation measures applicable to wholesale customers (mainly through insurance policies and, to a lesser extent, bank sureties) and receivables from cargo trading activities (collection, including through letters of credit, bank sureties or parent company guarantees). Most receivables arising from cargo trading activities (with a significant unit amount) are characterised by extremely limited terms of payment (i.e., a few days after the date of delivery of the goods); the allowance for impairment is currently calculated based on specific assessments of the recoverability of past due positions. It should also be noted that the losses on receivables historically recognised by the Group are not of a significant amount.
• Estimation of the fair value of derivatives: the assessment depends on expectations regarding the trend of the market variables, including commodity prices and exchange rates, the variability and volatility of which depends on factors that are outside the sector.
• The trend of market variables, in the medium-long term and in the short term, including the price and supply of crude oil and the worldwide demand of finished products with respect to the processing capacity, are capable of influencing, even significantly, the Group’s performance. This represents one of the critical assumptions for the various valuation processes, more specifically for the assessment of assets and of the recoverable value of inventories as well as the volatility of the current values of financial instruments. The underlying valuation processes, even complex ones, involve the expression of estimates which depend on variables that are outside the sector, which are highly volatile and which are based on assumptions that, by their nature, involve the use of a high degree of judgement on the part of Company Management. The same, for this purpose, also considers scenarios expressed by independent sector experts.

In order to present the performance of the Group's activities in a consistent manner, the information of the individual companies is allocated to the revised business segments in the light of what is set out below.

In fact, starting from the 2021 financial year, the Group's business sectors are as follows:

• Industrial & Marketing;
• Renewables.

With Resolution no. 598/2020/R/eel of 29th December 2020, ARERA (Italian Regulatory Authority for Energy, Networks and Environment) has indicated that TERNA register the combined cycle power plant of Sarlux Srl, IGCC (Integrated Gasification Combined Cycle), among the plants that are essential to the safety of the electricity system for the year 2021.

On 13th April 2021 ARERA - with Resolution 152/2021

• decided to accept the application for admission to the cost-recovery scheme, thus including Sarlux in the list - drawn up on an annual basis - of essential plants as from the expiry date of the related CIP6/92 convention (20th April 2021).

The transition from the CIP6/92 agreement to the essentiality regime has led to a significant change in the way the Sarlux plant operates, since the technical and economic parameters to be considered for its operation are those laid down in said regime and take into account the very high level of functional and strategic integration of the power station with the refinery. Therefore, the activities of the IGCC plant, previously represented in the "Power" segment, as from 1st January 2021 are represented in a single segment, called "Industrial & Marketing" which includes integrated refining and electricity generation activities in the Essentiality Scheme. This segment, which is also comprised of Marketing-related activities, included, until the previous year, the Spanish distribution network and warehouses used as intermediate logistics; the sale of the network, started in 2019 and finalised in 2020, which represented the relevant activity of the Marketing segment, entailed the closure of that segment, given that the plants remaining after such sale (the depots of Arcola, La Spezia and of Cartagena, Spain) are now subservient to the logistics of the refinery. Therefore, the Marketing segment is therefore no longer significant in its own right and has therefore been aggregated. Finally, the activities of the “Other Activities” segment, which in fact coincided with the activities carried out by Sartec and Reasar, also dedicated to integrated refining activities, have merged into the “Industrial & Marketing” segment.

The "Wind" segment has also been renamed the "Renewables" segment in view of potential developments in the photovoltaic and green hydrogen sectors and includes the subsidiaries operating in the wind power generation sector.